Qantas Big Changes -Positioning for the Future

We have been waiting for some big changes Qantas will be making for some weeks. I thought it was going to be in a week’s time…

Today Qantas had full page ads in most Australian newspapers. The ads promised that a new stronger Qantas was being built. One of the promises was that Qantas “will always be proud that the vast majority of our operations are based in Australia‘. The text of that advertisement is here.

Today at 10am Australian EST Qantas Group CEO Alan Joyce held a press conference to launch the “a new spirit” concept that is the base for sweeping changes in the way Qantas looks, feels and operates. His text is here. He has proposed a four pronged strategy:

Gateways- Qantas will reduce the number of ports of call to strategic places at which they will feed passengers to its partners. The gateways are: Dallas (American Airlines hub), Jo’burg, Kuala Lumpar (new One World member Malaysian), London, Hong Kong and Bangkok (British Airways- though I prefer Cathay out of HK), Santiago (where it can transfer passengers to and from LAN’s network)

Focus on Asia (which it will do through two new airlines)

Being Best for “Global travellers” in other words trying to win back premium passengers -many who have been annoyed with Qantas

A Stronger Business (read cost cutting)

Most of the changes were expected:

In line with the focus on Santiago, Qantas will pull out of the Sydney to Buenos Aries route. My friend Steve was stunned that I should have suggested this would happen as BA is one of his favourite cities. This is disappointing as I have not got to B.A. yet. I will definitely go through Santiago as flying with Areolineas Argentinas is not on my radar.

There will be a new Platinum 1 tier for frequent flyers with additional benefits for Silver and Gold members (not sure what they are yet). This cements the devaluation of Platinum. My sense is that they will eventually merge Platinum and Gold leaving Platinum One as the next level after Gold.

Qantas will focus its A380s onto the Pacific Route (SYD/MEL-LAX) and the Kangaroo Route (SYD/MEL-LHR via SIN). It will cease services to London via Bangkok and Hong Kong feeding passengers as mentioned into the BA network

1000 jobs will go- mostly in Australia one assumes. I was tipping 800-1200.

Some 380s will be deferred after they get to 12 at end of year (what choice do they have in this climate?). The deferment could be up to six years.

Four 747s will be retired (I wasn’t sure how many would go- I thought it might have been more)

Jetstar Japan in partnership with JAL as already foreshadowed will be launched

A new airline based in Asia, 49per cent Qantas owned, This airline will be a full service airline. The surprise is that “Qantas Asia” will not be called Qantas. Base and venture partner were not announced. My bet is Singapore. It will have 11 planes of which three will be A320s. This move helps Qantas reduce its high Australian labour and maintenance costs. Qantas will feed passengers to and from the new carrier at the key gateways. The focus on Asia makes sense as travel between Asia and Australia and across Asia continues to grow rapidly. Whether Qantas has the expertise to compete in that space will be interesting.

all remaining 747s will be refurbished with A380 seats (nice) with the entire 744 fleet completed by June 2014. This will extend the life of the 747 product

737s with premium product on NZ routes )Thank heavens)

a massive A320 order -110 of them of which 78 are the new 320NEOs of which 24 will go to to Jetstar Japan and 8 to the new premium airline

Uncertainties:

Frankfurt still remains or is that going?

Will Qantas keep flying to Bangkok and Hong Kong in the future or will they eventually Jetstar those sectors?

Is First Class here to stay?

What will happen to Qantas Platinum? Is my theory above correct?

There was no mention of the 787s. What is going to happen to those?

Will these changes help “save” one of the most profitable airlines in the world or will it cause further hemorraging and further cutbacks?

After hearing the announcement, I can see Qantas has been positioned for survival but I cant help feeling Qantas international has been diminished. The video accompanying the announcement reassures me that Qantas will “still call Australia home”. This is true. Qantas is now a largely Australian domestic airline with effectively six international routes, a set of Aust-NZ links which owns a domestic and international discount carrier and stakes in two Asian airlines. It is a retreat of the flying Kangaroo.

Concerns:

there is a perception that Qantas customer service has slipped over the last three years. This is borne out by the Skytrax survey. In 2008 Qantas was the world’s third best airline. In 2009, it fell to sixth place and they dropped to seventh in 2010. I firmly believe Qantas has slipped. I used to consider them my second favourite airline. They are now my 8th favourite. Joyce does not give any guidance as to how Qantas will reverse this perception

there was no mention of what Qantas will do in the Australian domestic market especially with an invigorated Virgin Australia breathing down their necks. The last big innovations have been the creation of CityFlyer branding of the domestic routes and addition of the Business lounges and the new (unpopular) check in system.

The dropping of Hong Kong to London is a mistake. Many Australians including myself use HK as a business and recreation stopover. If Qantas wants to offload me to British Airways, I will fly Cathay the whole way

I wonder how much of the domestic business gets revenue from the inbound international tourists?

Comments

So: losing the BA flight (kind of expected) — is it being replaced with a Santiago flight, or is that just codeshare with LAN? Qantas flying direct to Santiago makes sense, it's on the Western side of South America, so you could get to Peru more easily. I would imagine that most Australians flying there are going to be tourists to see Machu Picchu and Rio, in which case, Santiago is more direct. — Steve J

A couple of things about your points:1. If Hong Kong and Bangkok are gateways, why not Tokyo and Shanghai, let alone LA? BA fly to all of them, if only from London. Of course Qantas has announced the change from Buenos Aires to Santiago (a much inferior airport in my opinion), but none yet about Qantas service to KL.2. Qantas are planning on taking 14 A380s by mid-2012. The current fleet of 10 runs from Sydney daily and six times weekly from Melbourne to London and LA. The extra aircraft will enable all these flights to go daily, and a third daily to Los Angeles, plus possibly starting up on Brisbane-LA.The four 747s to be retired come from closing London to Bangkok and Hong Kong. More may be surplus as A380s take over more Pacific flights. The Frankfurt route occupies 3 747s: others are use on long hops (Dallas, South America, Jo'burg and Tokyo)The refurbishment of 747s refers only to the nine newest aircraft – this was announced last year.I assume the 787s, when they eventually arrive at Qantas, (the first deliveries are for Jetstar) are to replace the A330s, which are mainly used to Asia – and also from Auckland to LA and on to New York.I also guess that the new Asia-based carrier is planned to fly to the non-Sydney Australian cities from Asia – and with A320s and 787s because of the need for longer range. This is what the Qantas staff are scared of.

Hi RobinThanks for your comments.1. I have not been to BA or Santiago yet. I take your point reTokyo and assume it must be seen as a gateway feeding to JAL or can we expect the New Qantas Asia to take this.2. My understanding is the A380 timetable is to only add two more A380s this year with two more coming now in 2013.Totally agree with your last point, New Qantas Asia is about reducing labour and maintenance costs. It will be used to replace as many flights between Australia and Asia as they can.